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Key European data were recently released including Eurostat’s December electronic supply chain production by product and DMASS 4Q’12 semiconductor distributors’ sales by country.

December industrial production improved for the EU27 countries combined as well as Germany, the UK and Italy but declined slightly in France (Chart 1)

All levels of the European supply chain are at or near zero growth on a 3/12 basis however it appears that “the worst is over” for this current business cycle (Chart 2).

Total electronic equipment production rebounded from its November low point (Chart 3).

The 3-month (3/12) growth of Europe’s electronic equipment production “bottomed” in November (Chart 3) and then improved a bit in December. However it is still below 1.0. Not until the 3/12 exceeds 1.0 will European electronics be growing versus the same period a year earlier.

Electronic supply chain growth by sector for 4Q’12 vs. 4Q’11 is given in Chart 5. With few exceptions electronic production by product type declined significantly in the fourth quarter of 2012 versus the same quarter in 2011.

Semiconductor shipments to Europe and European electronic equipment production are “in balance” on a 3/12 growth basis. There appears to be little semiconductor inventory building or excess ordering (Chart 6).

By sector automotive production rebounded after a bad November (Chart 7), aerospace production remained strong and steady (Chart 8) while military production was volatile month-to-month (Chart 9). Instruments and controls (Chart 10) and medical electronics demand (Chart 11) have weakened.

Loaded boards (PCB assembly) production is growing (Chart 12) but wiring device (bare PCB production) is down (Chart 13) suggesting that imported bare PCBs are increasingly being used for European assembly.

Michael Gasch’s recent estimate (Chart 14) of Europe’s PCB production decline of 10.4% in 2012 is in-line with fewer locally-made PCBs being used for European electronic assembly.

Europe’s PMI leading indicator points to European PCB production returning to growth in mid-2013 (Chart 15).

Decline narrows in Q4/2012 but full year ends at -11%. Regional shifts to Eastern Europe continue.

The European Semiconductor Distribution Market followed a strange but foreseeable route in 2012. Compared to record first half 2011, the first half of 2012 was not able to uphold sales level. This gap travelled through the entire year, but it significantly narrowed until Q4 to a decrease of "only" 6.4%. At the end, 2012 finished with a decline of 10.8% and total sales revenues of 5.7 Billion Euro, according to DMASS (Distributors' and Manufacturers' Association of Semiconductor Specialists).

Georg Steinberger, chairman of DMASS, commented on the results: "We saw it coming that 2012 could not hold a candle to a record 2011, and here we are with a 10.8% decline. As we are in a market of high price pressure and huge swings in demand and supply, it was certainly unfortunate, but not unforeseeable and most probably many market participants were prepared. Given the environment, 2012 still was the second best year in distribution history."

Regionally, the situation was quite different to previous years. While in 2010 and 2011 Germany and Eastern Europe (including Russia) were constantly gaining share against other Western Regions, in 2012 Germany faced a steep decline of 16.2%; its share of the total market went from 34% to 31%.

Eastern Europe instead grew by over 8% (including Russia, which alone grew by 16%) and widened its share of the market to 16%.

In detail, the major markets performed as follows: Germany declined by 16.2% to 1.85 billion euro, Italy by 18.8% to 518 million euro, UK by 8.8% to 486 million euro, France by 8.8% to 415 million euro and Nordic by 17.4% to 567 million euro. Eastern Europe (including Russia) grew to 834 million euro.

The other countries and regions ended at or around the average. Israel was an exception and grew by 11%, mainly due to reporting changes.

Georg Steinberger: "While Italy certainly fell victim to the macro-economic environment with a huge loss of production to the East, Germany's weakness might be sector-related (Automotive) and also may have experienced some corrections to an overheated 24-months period in 2010/2011."

Product-wise, the areas of Discretes, Power, MOS Micro and Standard Logic suffered most, with an annual decline between 15 and 20%, while Opto, Analog, Memories, Programmable Logic and Other Logic dropped between 4.3 and 9.9%. The only specific product areas that actually grew year over year were Sensors, High-Power-LEDs, NAND-Flash and DRAMs. The biggest product groups remained Power, Analog, MOS Micro and Programmable Logic.

Georg Steinberger: "Apart from some high-growth areas or commodity-related products, the decline of sales was across the board and most probably due to general market weakness, full inventories and price pressure. Let's see how these indicators develop in 2013, with macro-economies improving and inventories being to a large extent depleted."

Worldwide mobile phone sales to end users totaled 1.75 billion units in 2012, a 1.7% decline from 2011 sales, according to Gartner, Inc.

Smartphones continued to drive overall mobile phone sales, and the fourth quarter of 2012 saw record smartphone sales of 207.7 million units, up 38.3% from the same period last year.

“The last time the worldwide mobile phone market declined was in 2009,” said Anshul Gupta, principal research analyst at Gartner, in a statement. “Tough economic conditions, shifting consumer preferences and intense market competition weakened the worldwide mobile phone market this year.”

Demand for feature phones remained weak in 2012 and in the fourth quarter. Feature phone sales totaled 264.4 million units in the fourth quarter of 2012, down 19.3% year-on-year. Gartner analysts expect feature phones sales to continue to fall in 2013. Gartner predicts that sales of worldwide smartphone sales to end users will be close to 1 billion units in 2013, and overall mobile phone sales to end users are estimated to reach 1.9 billion units.

In the fourth quarter of 2012, Apple and Samsung together raised their worldwide smartphone market share to 52% from 46.4% in the third quarter of 2012. Samsung ended the year in the number one position, in both worldwide smartphone unit sales and overall mobile phone unit sales.

“There is no manufacturer that can firmly lay claim to the number three spot in global smartphone sales,” said Gupta. “The success of Apple and Samsung is based on the strength of their brands as much as their actual products. Their direct competitors, including those with comparable products, struggle to achieve the same brand appreciation among consumers, who, in a tough economic environment, go for cheaper products over brand.”

India Adding 10 Electronics Manufacturing Clusters by Year-end

At least 10 electronics manufacturing clusters are likely to materialize in India within the year said Ajay Kumar, Joint Secretary of the Department of Electronics and Information Technology. He said that elements of the National Policy on Electronics, which was approved by the Union Cabinet last October, would enable India to become a hub for the global Electronic System Design and Manufacturing (ESDM) industry.

Dr. Kumar said the government had notified the Modified Special Incentive Package Scheme (M-SIPS), which is applicable to 29 categories of electronic products. The scheme provides for a 25 per cent subsidy on capital investments in new ventures and a 50 per cent grant for common facilities for units located in an area. "By the end of the year, we expect to approve M-SIPS incentives for investment proposals worth Rs. 25,000 crore," Dr. Kumar said. He pointed out that benefits of M-SIPS were available for period of 10 years after the initial investment.

Walt D. Custer

Walt Custer is an industry analyst focused on the global electronics industry. Prior to forming Custer Consulting Group he was Vice President of Marketing and Sales for Morton Electronic Materials, a global supplier of specialty chemicals and process equipment for the PCB industry.

Custer has been a member of the IPC trade organization since 1975 where he received both the President's and the Raymond E. Pritchard Hall of Fame Awards. He is currently a member of the IPC Executive Market & Technology Steering Committee. Custer is also a Director of the EIPC European PCB trade organization.

He authors regular “Market Outlook” columns for Global SMT & Packaging magazine, the Journal of the HKPCA and the TTI MarketEYE website.